Unit Trust of India (UTI) should not allow institutional investors to make fresh investments in its flagship scheme, US-64, as their continuance in the scheme poses a sustained challenge to its stability, according to S S Tarapore, who authored the recent UTI inquiry report.
Tarapore said that institutional investors are momentum investors who enter and exit even with small rises in the net asset value (NAV). "So the NAV goes down and the other smaller investors lose," Tarapore said at the Press Club-Tata Consultancy Services Speakers' Forum here today.
Tarapore, who was clarifying on various points of the inquiry report, also praised the present UTI management under M Damodaran's stewardship for doing a commendable job.
"There is no need to ask the existing corporate and institutional investors to exit," he said, adding that when they exited they should not allowed to return to the scheme. In other words, there should be a gradual phasing out of such large-ticket investors through natural accretion.
This would ensure that the net asset value did not get eroded substantially, while it would also support the trust's attempts to narrow down the gap between the NAV of the scheme and the fixed repurchase price for its investors.
There were other schemes in UTI, he said, in which institutional investors could invest. "There are special institutional investors' schemes in which they can invest," he pointed out. According to Tarapore, this was a major lacuna in the past in US-64 and it would continue to be so as long as such investors are allowed to make investments.
Tarapore also stressed on the need to strengthen and revamp inter-scheme transfers. "While under the new dispensation UTI is committed not only to declare the NAV but also to reveal the portfolio, there should also be a revealing to investors of the details of inter-scheme transfers."
